Nouriel Roubini, a professor at NYU’s Stern School of Business and CEO of Roubini Macro Associates, was Senior Economist for International Affairs in the White House's Council of Economic Advisers during the Clinton Administration. He has worked for the International Monetary Fund, the US Federal Reserve, and the World Bank.

You believe that interest rate is something monolithic, but I think they are two one gross and the other net. In the side of borrower this is not important, but on the other hand is very important this distinction. The net interest rate is given by the Central Bank, but the gross interest rate take into account the credit risk. In standard conditions the gross and the net interest rate are very similar because the credit risk is low and the value of the net interest rate is relatively high. But now the credit risk is high and net interest rate is low, the difference between net and gross is big. If I made ​​100 loans of € 1,000 each to 10% and 10 become insolvent, the real interest rate is -1%, I lose money. Although the net interest rate bill be zero the gross interest rate should be higher than 10% and during the crisis few businesses give those returns. And this is my explanation of the liquidity trap. At the difference between net and gross interst rate I name barrier of fear. If the net interest rate is low and the fear is low to, because "this time is different", the money flow and we have bubbles, but if the fear is high we have a credit crunch.

Yes, people are throwing everything but the kitchen sink on the crisis without any true, discernible effect. And we keep on discussing what else we could do with the ship that has lost direction and most importantly is drifting on stormy waters without any engine or sails. When will we pull our heads out of the sand, swallow the bitter pill and admit that such an illusion as constant quantitative growth in a finely balanced, closed and finite natural system is impossible? We have been living in an artificial, excessive demand based human bubble within a system that is much vaster and powerful than us, which system operates on laws that are opposite to the artificial laws we created believing humanity is above nature and evolution stopped with us. No manipulations, contorted plans, Nobel prize winner treatise will save us until we accept our place in the system and adapt to it. Our human uniqueness is not in being heroes, pioneers, trying to shape everything around us to out own misguided ideas, but in recognizing who we are, where we are. Humans are the only creatures that are capable of such critical self-assessment and self-change.

Capitalism does indeed cause the boom-bust cycles. That's intrinsic to capitalism. In phases of high productivity growth the markets allow/cause abnormal profits and the appropriation of value from the high productivity growth sectors. Since this value is not redistributed to the economy the system becomes unstable and is usually followed by a severe demand crisis. So yes boom and bust ate capitalism at its best. Planners usually make it worst, but mostly because they fail to put in place the proper regulation in boom periods and follow exotic economic theories on bust periods.

Strange why so many people are worried because of bubbles and fail to acknowledge the problem of risk aversion. How Rubini can hint that the interest rate is at the zero lower band because of policy, while failing to take notice that interest rates for risk free assets are near zero because of the liquidity preference. Policy has nothing to do with it, investors don’t invest and that’s why money is cheap. Also would like to see where is the evidence of housing bubble, when construction is at its lower level in this century…. IMHO Roubini is way wrong on this one, makes you wonder if getting the last crisis was just luck.

@John FED is trying to gain traction by changing expectations (the only thing they can do), namely inflations expectation, that would induce investors to move money to the real economy and get out of liquidity trap conditions. FED is pursuing a policy of monetary expansion in a situation where we already are at the zero lower bound, but the fact the interest rates are close to zero has few to do with the QE. Interest rates are close to zero because we are living in a liquidy trap conditions, where investors have a strong liquidity preference because of risk aversion. FED is buying bonds and expanding monetary base, without any effect on interest rates or economy in general, because there is no transmission to real economy. Money just sits on banks or in reserves since savings are not being transformed in investment (neither public nor private). Look at other countries, namely Germany and Sweden for similar effects without QE in place

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